Supreme Court Upholds Delhi’s Sales Tax on Silk Fabric: Saree Sansar vs. Govt. of NCT of Delhi (21 March 2024)

Introduction

Date of the Judgment: 21 March 2024
Citation: 2024 INSC 240
Judges: Abhay S. Oka, J. and Sanjay Karol, J.

Can a state government levy sales tax on goods that are also subject to additional excise duties? The Supreme Court of India recently addressed this question in a case concerning silk fabric in Delhi. The core issue was whether the Delhi government could impose sales tax on silk fabric, given that it was also listed under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act). The Supreme Court, in a two-judge bench comprising Justices Abhay S. Oka and Sanjay Karol, delivered the judgment, with Justice Abhay S. Oka authoring the opinion.

Case Background

The appellant, Saree Sansar, challenged an assessment order issued on 31st October 2001, which levied a 12% sales tax on silk fabric for the period between 15th January 2000 and 31st March 2000. This tax was imposed by the Delhi government under the Delhi Sales Tax Act, 1975 (DST Act). Initially, on 31st March 1999, the sales tax on silk fabrics was set at 3%. However, on 15th January 2000, silk fabric was included in Schedule I of the DST Act, increasing the tax to 12%. Subsequently, on 31st March 2000, it was moved to Schedule II, reducing the tax to 4%. Saree Sansar contested the 12% tax, arguing that since silk sarees were “declared goods” under the ADE Act, the Delhi government could not levy sales tax on them. The Delhi High Court dismissed the writ petition filed by Saree Sansar, leading to the appeal before the Supreme Court.

Timeline

Course of Proceedings

The appellant, Saree Sansar, initially filed a writ petition before the Delhi High Court challenging the assessment order that levied a 12% sales tax on silk fabric. The Delhi High Court dismissed the petition, upholding the assessment order. Aggrieved by the High Court’s decision, Saree Sansar appealed to the Supreme Court of India.

Legal Framework

The case revolves around the interpretation of the Delhi Sales Tax Act, 1975 (DST Act), the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act), and the Central Sales Tax Act, 1956 (CST Act). Section 4(1) of the DST Act empowers the Delhi government to issue notifications regarding sales tax rates. The ADE Act imposes additional duties on goods of special importance. The CST Act, specifically Sections 14 and 15, deals with declared goods and restrictions on state sales tax. Section 14 of the CST Act, before its deletion, declared certain goods as being of special importance in inter-state trade or commerce. Section 15(1) of the CST Act, as it existed during the relevant period, stipulated that the local sales tax rate on declared goods should not exceed 4%.

The Second Schedule of the ADE Act outlines the distribution of net proceeds of additional duties to the States. It states that if a State levies sales tax on goods described in Schedule I of the ADE Act, no sums shall be payable to that State under this paragraph, unless the Central Government directs otherwise.

Article 266 and 269 of the Constitution of India, which deal with the Consolidated Fund of India and the collection and distribution of taxes, were also referred to by the appellant.

Arguments

Appellant’s Submissions:

• The appellant argued that “Silk Sarees” fall under item no. 50.05 of the First Schedule to the ADE Act and are considered “declared goods.” Therefore, the Delhi Government was not authorized to levy state sales tax on these goods.
• The appellant contended that the ADE Act levies additional duties on declared goods in lieu of sales tax. After deducting 2.203% for Union Territories, the remaining proceeds are distributed among the States.
• The appellant relied on Articles 266 and 269 of the Constitution, highlighting that proceeds attributable to Union Territories are kept aside and do not form part of the Consolidated Fund of India. Delhi was getting its share of ADE at the relevant time, thus, the Delhi Government was barred from levying sales tax on “Silk Sarees.”
• The appellant argued that the ADE Act aims for uniformity in duty/tax on “goods of special importance” throughout the country.
• The appellant cited Godfrey Phillips India Ltd. v. State of U.P. [ (2005) 2 SCC 515], arguing that no State can levy sales tax when it is entitled to share proceeds under the ADE Act.
• The appellant also relied on State of Kerala v. Attesee [(1989) Supp.1 SCC 733] to support their claim that the Delhi Government was not entitled to levy sales tax on silk sarees.
• The appellant argued that the deletion of “silk fabric” from Section 14 of the CST Act was irrelevant.
• In the alternative, the appellant submitted that under Section 15(1) of the CST Act, the Delhi Government could not claim sales tax over 4%.

Respondents’ Submissions:

• The respondents argued that silk fabric was deleted from the list of items in Section 14 of the CST Act with effect from 11th May 1968. Therefore, there was no restriction on levying sales tax at a rate above 4%.
• The respondents contended that even though silk sarees are covered by clause 50.05 of the First Schedule to the ADE Act, the additional duty payable on this item is nil. Therefore, the Delhi Government was not receiving any share in duty on silk fabric, as no ADE was leviable.
• The respondents submitted that the view taken by the Delhi High Court was correct and did not require interference.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue addressed by the court was:

• Whether the Delhi Government was authorized to levy sales tax on silk fabric at a rate of 12% for the period between 15th January 2000 and 31st March 2000, given that silk sarees were included under the ADE Act.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• State of Kerala v. Attesee [(1989) Supp.1 SCC 733] – The Court discussed the interconnection between the CST Act, the ADE Act, and the State Sales Tax Acts. The Court noted that this case dealt with the scheme of compensation to states for loss of sales tax revenue when additional excise duties were imposed.
• Godfrey Phillips India Ltd. v. State of U.P. [(2005) 2 SCC 515] – The Court noted that this case was not directly relevant to the issue at hand.
• M.R. Tobacco Pvt. Ltd. v. Union of India and Ors. [(2006) 145 STC 211 (Del)] – The Delhi High Court’s decision, which upheld the validity of the notification dated 31st March 2000 issued under the DST Act, was noted. The Supreme Court also noted that this decision was affirmed by the Supreme Court in Civil Appeal No. 8486 of 2011.

Statutes:

• Delhi Sales Tax Act, 1975 (DST Act): The Court considered Section 4(1), which empowers the Delhi government to issue notifications regarding sales tax rates.
• Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act): The Court examined the provisions related to the levy of additional duties on goods of special importance and the distribution of proceeds to the states.
• Central Sales Tax Act, 1956 (CST Act): The Court analyzed Sections 14 and 15, which deal with declared goods and restrictions on state sales tax. Section 14, before its deletion, specified goods of special importance, while Section 15(1) limited the local sales tax rate on declared goods to 4%.

Authority Table

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• State of Kerala v. Attesee [(1989) Supp.1 SCC 733]: The court discussed the case to explain the interconnection of the CST Act, the ADE Act and the State Sales Tax Acts.
• Godfrey Phillips India Ltd. v. State of U.P. [(2005) 2 SCC 515]: The Court held that this case did not deal with the issue arising in the present case.
• M.R. Tobacco Pvt. Ltd. v. Union of India and Ors. [(2006) 145 STC 211 (Del)]: The court noted that the Delhi High Court upheld the validity of the notification dated 31st March 2000 issued under the DST Act and that the same was affirmed by the Supreme Court.
• Delhi Sales Tax Act, 1975 (DST Act): The court considered Section 4(1) to validate the power of the Delhi Government to issue notifications regarding sales tax rates.
• Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act): The court analyzed the provisions to determine that no additional duty was payable on silk fabric.
• Central Sales Tax Act, 1956 (CST Act): The court analyzed Sections 14 and 15 to determine that the deletion of silk fabric from Section 14 removed the restriction on levying sales tax above 4%.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The fact that silk fabric was removed from the list of declared goods under Section 14 of the CST Act, which lifted the restriction on states levying sales tax above 4%.
• The fact that no additional duty was payable on silk fabric under the ADE Act, meaning the Delhi government was not receiving any share of duty under the ADE Act for silk fabric.
• The proviso in the second schedule of the ADE Act makes it clear that there is no bar on the states levying sales tax.

The court emphasized that the appellant’s arguments were based on a misinterpretation of the ADE Act and its interplay with the CST Act. The court clarified that the ADE Act does not bar states from levying sales tax, especially when no additional duty is payable on the specific goods.

Sentiment Analysis of Reasons:

Fact:Law Ratio:

The court’s reasoning was primarily based on legal interpretation (80%) and less on the specific factual aspects (20%) of the case.

Logical Reasoning:

The court considered the appellant’s arguments based on the ADE Act and Section 15(1) of the CST Act but rejected them. The court reasoned that the deletion of silk fabric from the list of declared goods under Section 14 of the CST Act removed the restriction on levying sales tax above 4%. Additionally, the court noted that no additional duty was payable on silk fabric under the ADE Act. The court emphasized that the proviso in the second schedule of the ADE Act makes it clear that there is no bar on the states levying sales tax. The court also noted that the case of Godfrey Phillips India Ltd. v. State of U.P. was not relevant to the issue at hand.

The court’s decision was unanimous, with both judges concurring on the judgment. The court did not introduce any new doctrines or legal principles.

The court quoted the following from the judgment:

“However, silk fabric was deleted from the list contained in Section 14 of the CST Act, effective 11th May 1968. Therefore, during the relevant period for which the impugned assessment order was issued, as silk fabric was not a part of the list under Section 14, there was no embargo on levying sales tax on silk fabric at a rate exceeding 4%.”

“However, no additional duty was made payable on silk fabric under the ADE Act. The proviso makes it clear that notwithstanding the ADE Act, there is no bar on the States levying sales tax. If the States do that, no part of the additional duty under the ADE Act will be payable to the concerned States.”

“Therefore, we find no error in the view taken by the Delhi High Court in the impugned judgment. Accordingly, the appeal is dismissed with no orders as to costs.”

Key Takeaways

• States can levy sales tax on goods even if those goods are listed under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, provided that no additional duty is payable on those goods under the ADE Act.
• The deletion of an item from the list of declared goods under Section 14 of the Central Sales Tax Act, 1956, removes the restriction on states levying sales tax above 4% on that item.
• The Additional Duties of Excise (Goods of Special Importance) Act, 1957, does not bar states from levying sales tax, especially when no additional duty is payable on the specific goods.
• This judgment clarifies the interplay between the Central Sales Tax Act, the Additional Duties of Excise Act, and state sales tax laws.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that a state government is not barred from levying sales tax on goods even if they are listed under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, provided that no additional duty is payable on those goods under the ADE Act and the goods are not declared goods under Section 14 of the Central Sales Tax Act, 1956. This clarifies the legal position regarding the imposition of state sales tax on goods that are also subject to central excise duties. There is no change in the previous position of law.

Conclusion

The Supreme Court dismissed the appeal filed by Saree Sansar, upholding the Delhi High Court’s decision. The court ruled that the Delhi government was authorized to levy a 12% sales tax on silk fabric during the period in question because silk fabric was not a declared good under Section 14 of the CST Act and no additional duty was payable on it under the ADE Act. This judgment clarifies the scope of state sales tax powers in relation to goods listed under the ADE Act and the CST Act.